Friday, June 26, 2009

Stock Market Review - 6/26/2009

Green Shoots or Punji Sticks?

The lie-athon continues. This week, our wonderful government gave us more good news about the economic recovery. I won't run down the list. Everything was better. Home sales, industrial production, GDP past and present, inflation, you name it. We are all even making more money and saving it to boot. Sure we are. Meanwhile, unemployment (government figures) looks likely to sport double digits soon and real unemployment is probably pushing 20%. Only bankers are getting raises and more home owners are drowning in foreclosure and delinquency. Two of our three major car manufactures are in bankruptcy court and the third is pulling on a $3 billion dollar government bailout loan. Our biggest airplane manufacturer, Boeing, just delayed its newest airplane for a couple of years but that's okay, they may not need it as orders are getting cancelled anyway. Fed Ex said business was slow and fertilizer producers cut projections by 50% since farmers don't have money to pay for the stuff. The government is trying to seduce the populace into buying cars and houses by subsidizing the prices. May income was up due to stimulus checks going to Social Security recipients. I didn't know these folks had income in the first place! Better watch out. Those 'green shoots' might turn out to be punji sticks.

Our Treasury auctioned over $100 billion in Treasury notes this week. It was a record amount. It was also in short maturities as they didn't dare push their luck with longer maturities. No one wants to play that game. In a further effort to skew reality, the government changed the statistic that shows how much foreign demand there is for our junk paper to make it look like foreign banks stepped up to the plate big time. Supposedly, this group of Treasury buyers increased their percentage of buying this week to 67% from around the usual 33%. Again, our government just changed the formula. Don't get excited. The foreign banks are not excited to own our Treasuries. Neither is Bernanke but he's in there as well buying big chunks as he follows through on his pledge to buy $300 billion by Autumn. So, at some point, the Fed will need to raise interest rates, what with the economic recovery gaining steam and all, and they do so by selling Treasuries. Won't that damage the Fed's portfolio and balance sheet? I thought the Fed was supposed to be disconnected to the government of the US? Oh, wait a minute - they are the government of the US!!

Below is the one-week chart of the DIA (Dow ETF). It's interesting in that the volume is still concentrated at the beginning and end of each day. The selling came on heavy volume. And, as the Dow slipped back towards 8200, it scared the bejeepers out of the PPT and they hit the market first thing Thursday morning with an impressive couple hours of buying. What are they so afraid of - the truth?

One week ending 6/26/09 DIA
Chart courtesy

Here is another interesting chart. The chart below is the SPX in red and UDN (down dollar) in blue. I don't even need to explain this. The stock market can only go up if the dollar is weakening. Why? The current P/E of the Dow is north of 25 (Barron's says 50) so the markets are not going to rise because they are of good value. They will only rise on the back of pure hyperinflation. I know, I know. The Fed says there is none. If so, then the markets will soon resume their march to zero because the only thing holding them up at these levels is stimulus, mark to fantasy accounting, and lies. Watch these two lines very closely. If they begin to diverge like they should, the Dow will fall with the S&P 500 and the dollar will become next to worthless. They only converged once Bernanke staged his coup takeover of the government in August of 2007. 
2 years SPX and UDN
Chart courtesy

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